Changing Landscape: Supervision, Examination, and Credit Enforcement in the Credit Reporting Ecosystem

For credit reporting–related companies, “enforcement is back.” The key question is what to expect and how to prepare adequately for anticipated increases in supervision and enforcement that were relatively benign under the prior administration. How should furnishers and credit reporting agencies prepare for the changes in expectations from federal regulators?

Download the full paper from Michael Canale and John DelPonti.

The primary regulators of furnishers and credit reporting agencies at the federal level are the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC). The new head of the CFPB and the revised makeup of the FTC will promote the enforcement of consumer laws and are expected to ramp up consent orders and penalties.

• CFPB: President Biden has nominated Rohit Chopra as CFPB director. Mr. Chopra is a strong consumer advocate and believes that regulatory violations should be enforced aggressively. He has a harsh view of credit reporting, noting, “Consumers continue to discover serious errors on their credit reports or feel forced to make payments to debt collectors on bills they already paid or never owed to begin with, including for medical treatment related to Covid-19.”[1]

In the short term, the new acting director of the CFPB, Dave Uejio, “will focus on taking all available measures to protect consumers, particularly vulnerable ones, negatively affected by the pandemic; he also will work to utilize the tools of the Bureau to tackle racial disparities and inequalities laid bare by the pandemic.”[2] He has stated that priorities for the CFPB will include reversing policies of the prior administration that weakened enforcement and supervision, supervising lenders for compliance with the Military Lending Act, and focus on oversight of companies responsible for COVID-19 relief, including credit reporting issues and expedited enforcement.

• FTC: On January 21, President Biden designated Rebecca Kelly Slaughter as acting chair of the FTC. She replaces Joseph Simons, who resigned effective January 29. The majority of commissioners at the FTC will be Democrats, with the current administration filling two openings on the five-person commission due to the resignations of Chairman Simons and Commissioner Chopra.

With these changes, it is critical to be well versed on Fair Credit Reporting Act (FCRA) law and the issues highlighted in enforcement actions. In our experience, credit reporting–related enforcement actions, such as consent orders, serve as a form of implicit regulatory guidance. Key themes and areas of focus from recent credit reporting enforcement and litigation include obtaining consumer reports for permissible purposes only, the need to follow the policy and procedure expectations of Appendix E, and a significant focus on the accuracy and integrity of furnishing. The regulators expect furnishers to know the guidelines in which they are furnishing and test for their accuracy. In most cases the focus has been on accuracy to the Metro 2® guidelines, but accuracy and integrity is also critical for companies furnishing deposit consumer reporting data to specialty consumer reporting agencies.

With increasing expectations, what can you do to improve your firm’s internal controls? In the short run, prepare for increased regulatory focus on CARES Act accommodations. Make sure that the treatment of credit reporting for those borrowers and the post-accommodation period are well documented and working appropriately. Ensure that you have a detailed understanding of the released Consumer Data Industry Association (CDIA) Metro2® guidance for COVID-19 post-accommodation reporting[3] which covers CARES Act post-accommodation scenarios for full accommodation repayment, short-term accommodation repayment, and payment accommodation deferral.[4]

From an overall perspective, consider refining your internal controls in the following areas:

• Furnishing: pre- and post-transmission data analytics on Metro 2® data, sample testing of tradelines (which can include comparisons of system of record, Metro 2® data, and soft pulls), and documenting system source to target mapping for Metro 2® logic
• Disputes: quality assurance and quality control of disputes investigations, establish feedback loop with disputes reviewers, review of disputes trends (identify significant, repeat, and systemic issues), monitor staffing levels and amount of time spent on reasonable investigations, leverage approaching reports to identify response timeline risk and manage work queues
• Management reporting: use of FCRA dashboards, highlight key trends in furnishing and disputes, establish key risk indicators (KRIs) for metrics being monitored, automate this reporting, and share it with business and compliance
• FCRA risk assessments: perform periodic evaluations of furnishing and disputes operations

With the pressure to improve, we also are seeing the advancement of emerging technologies. Companies are using data-analytic solutions to assist in the QC process. The use of robotic process automation (RPA) is being deployed for use in disputes (assembling documentation, prepopulating investigation templates, record retention archiving, etc.) and automating data entry and other tasks. Artificial intelligence is being used to evaluate dispute and complaint trends and determine drivers, identify frivolous disputes, and predict behavior.

In conclusion, FCRA compliance is reenergized, and evaluating your processes before the regulators is essential. Focusing on strong internal controls and the use of technology solutions can ensure your FCRA-related processes are compliant while also more efficient and effective.

[1] Prepared Statement of Commissioner Rohit Chopra Before the United States Senate Committee on Banking, Housing, and Urban Affairs (March 2, 2021), available at: https://www.banking.senate.gov/imo/media/doc/Chopra%20Testimony%203-2-21.pdf

[2] CFPB, “Dave Uejio, Acting Director,” available at: https://www.consumerfinance.gov/about-us/the-bureau/acting-director/

[3] CDIA, “Metro 2® Format COVID-19 Post-Accommodation Reporting Guidance Now Available!!,” available at: https://cdia-news.s3.amazonaws.com/CARES+Act+Post-Accommodation+Reporting+Guidance.pdf

[4] The guidance addresses reporting related to the credit limit, highest credit/original loan amount, terms frequency, scheduled monthly payment amount, account status code, payment history profile, current balance, amount past due, and special comment fields.